Trusts are often created to help streamline the transition of assets from one person to another (or group) and avoid probate court. Dealing with a death is difficult enough, and probate court doesn’t make the process any easier.
There is still a process when the trust’s grantor dies that any beneficiaries should be aware of. Let’s go through what happens after a trust grantor dies.
A revocable trust is also called a revocable living trust since these trusts are generally created when the asset owner is still alive. The owner still owns the assets in the trust and can make changes to the trust. The trust is a legal entity. Upon the death of the owner, ownership of assets is transferred to the beneficiaries.
This is unlike an irrevocable trust, which cannot be changed and owns any assets within the trust.
A grantor is the person who created the trust and owns the trust’s assets. This person is called the grantor because the assets will eventually be granted to the trust beneficiaries/heirs. A grantor is also called a trustor. The grantor can be a single person or a married couple.
When the trust owner (i.e., grantor) passes, the successor trustee takes over. This is a person or persons named by the grantor. The successor might even be a law firm if the grantor could not find a suitable individual.
Upon death, the trust ownership transitions to the named trustee. This person is now responsible for administering the trust. However, that doesn’t mean they fully understand the trust or know how to administer it.
Trust can be complex and composed of long legal documents. It’s usually best to hire an attorney to go through the trust to understand what it means. The attorney will also help the trustee figure out the next steps.
Before beneficiaries are granted assets, debts should be settled by the trust. The amount owed will depend on how much is claimed by creditors.
Note that creditors can still claim assets in a revocable trust. Should this happen, beneficiaries will receive what’s left over. An irrevocable trust is different in that it provides legal protection against creditors.
Beneficiaries may decide to sell a house if it is part of the trust. Any proceeds from the sale go to the trust, not the heirs. Proceeds can then be distributed amongst the beneficiaries through the trustee and the trust’s bank account. Trusts should have a separate bank account so money is not co-mingled with beneficiaries/heirs.
Depending on the grantor's instructions, assets may be distributed to beneficiaries immediately, over time, or under certain conditions. Sometimes, a revocable trust is set up to go into an irrevocable trust. This can complicate things for beneficiaries, but it all depends on how the trust is set up.
Some trusts are straightforward because they have minimal assets and no conditions under which assets are distributed to beneficiaries. However, other trusts are more involved and require assistance from an attorney. This increases the overall expense of administering the trust, decreasing net assets distributed to beneficiaries in the process.